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Our Top Market Takeaways for July 21, 2023

Market update: What is behind the summer vibe shift?

A year ago, the U.S. was in the midst of a “vibe-cession.” Even though businesses were hiring and debt defaults were low, the economy wasn’t good, or even fine.

Inflation was surging. Gasoline prices were high. The housing market was at a standstill. The stock market was down and crypto prices had collapsed. Consumer sentiment (as measured by the University of Michigan) hit its worst levels on record. That means that last summer, U.S. consumers felt worse about the economy than they did during the COVID-19 lockdowns, the Global Financial Crisis, the Tech bubble-bust or the Volcker recession.

This summer, we are seeing a big positive vibe shift. So why is everyone feeling better all of a sudden?

Let’s start with what hasn’t happened. We still haven’t had the recession that many thought was inevitable. The U.S. government reached a benign agreement to raise the debt ceiling and avoid a default. The March bank failures haven’t led to a material credit crunch. Neither have high profile problems in office buildings in San Francisco, Chicago or New York (at least not yet).

Now, a look at what has happened. Inflation is coming down (about 3% year-over-year). So are gasoline prices (about $3.55 per gallon). Home prices are rising again (after eight months of declines starting in July 2022). The stock market has rallied to within 5% of its all-time high, and even crypto has bounced back. Consumer sentiment has seen one of its largest year-on-year jumps on record.

This chart describes consumer sentiment and inflation using the UMich Consumer Sentiment Index and the headline CPI, year-over-year percentage change data.

Labor supply continues to recover (the labor force participation rate for prime aged workers is the highest it has been since 2002), and worker earnings are finally outstripping inflation. The pile of excess savings that households accumulated during the pandemic has been slowly melting away, but research from our own JPMorgan Institute shows that they still have more money in the bank than they did in 2019. Millennials are even starting to move out of their parents’ basements despite a housing market plagued by historically poor supply and low affordability.

Funds from the Bipartisan Infrastructure Bill are flowing into the economy from projects as grand as upgrading the Golden Gate Bridge in San Francisco to as humble as adding traffic lights to Federal Road in Brookfield, Connecticut.

The Inflation Reduction and CHIPs Acts are encouraging investment in manufacturing facilities, and artificial intelligence applications are already set to boost productivity at businesses from auto dealerships to e-commerce platforms. Microsoft, one of the most valuable companies in the world, soared to a new record high this week after announcing prices for its suite of AI products.

This isn’t to say that risks have disappeared. Manufacturing activity is weak. Interest rates are higher. Banks have tightened lending standards and will likely have to fight to retain deposits. China’s reopening has been sputtering, and European economic data has been disappointing. But this year has already exceeded almost everyone’s expectations, and it seems like there is still room for things to keep getting better, not worse.

Investment implications: Let the good times roll

Markets, as they tend to do, didn’t wait for the vibe shift to adjust. Throughout the year, equity markets have been rallying because the outlook was improving. After a nearly 20% gain so far this year for global equities, we aren’t surprised that many people feel like they have “missed it.”

But instead of asking “how long can the good times last,” we think investors should instead consider that for the U.S. economy and markets, “the good times” are much more common than the bad.

The chart describes a history of S&P 500 bull and bear markets and it’s done in a clustered column format. The left-hand axis is the magnitude of bull & bear markets in terms of % of total gain or total drawdown (S&P 500 total return) and the right-hand axis is the S&P 500 index level (log scale).

Since World War II, the economy has expanded almost 90% of the time, and bull markets last about four times longer than bear markets. Being close to all-time highs is also an insufficient reason to shun equities. The average one-year return from when the S&P 500 is within 5% of an all-time high is 7.6%, which is only slightly lower than the 9% average from any random starting point.

If anything, the vibe shift is the latest illustration that sticking with an investment plan is the most repeatable way to achieve investment goals. Not many thought that 2023 would end up being a great year for investors, but if the gains so far merely hold, it will be. Let the good times roll.

All market data from FactSet and Bloomberg Finance L.P., 7/21/23.


Small capitalization companies typically carry more risk than well-established "blue-chip" companies since smaller companies can carry a higher degree of market volatility than most large cap and/or blue-chip companies.

International investments may not be suitable for all investors. International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Some overseas markets may not be as politically and economically stable as the United States and other nations. Investments in international markets can be more volatile.

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The Standard and Poor’s 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The Bloomberg Eco Surprise Index shows the degree to which economic analysts under- or over-estimate the trends in the business cycle. The surprise element is defined as the percentage difference between analyst forecasts and the published value of economic data releases.

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The MSCI World Index is a broad global developed markets equity benchmark designed to support: Asset allocation: Consistent, broad representation of the performance of developed equity markets worldwide, without home bias.

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expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.


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